(Bloomberg) – General Electric Co. has "very high" exposure to the long-term insurance market and is below average when it comes to the adequacy of reserves tied to these insurance policies, according to Fitch Ratings.  Genworth Financial Inc., which was spun off from GE in 2004, and Unum Group is also below average, Fitch said Tuesday in a report analyzing the capital investment reserves that fund future cash flows for long-term business. GE said the current reserves are "well supported" for its long-term care portfolio. In recent years, insurance companies have been burned by the policies, which pay for home care aids or nursing stays, amid higher than expected costs and low interest rates.
Policies are among the risky products of US life insurance companies because of their volatility, high capital requirements and sensitivity to interest rate risk, according to Fitch. The valuation company expects the insurance companies to add more funds to support the insurance in the near term.
GE has struggled with issues from an old book of insurance contracts, announcing a $ 6.2 billion fee in 2018 related to that portfolio. Harry Markopolos, the fraudster who is known to have named Bernie Madoff, released a report last week that narrowed GE's insurance accounts and ownership interests in oil service company Baker Hughes.
He said GE will need to increase its insurance reserves by $ 18.5 billion immediately in cash and take an additional $ 10.5 billion fee when new accounting rules come into force. GE pushed back, and CEO Larry Culp called the allegations "market manipulation."
Reserve issues have hammered GE shares, which have fallen 50% since the beginning of last year. Markopolo's claims sent them down 11% on Thursday, though they have since reversed some of that decline. The stock fell 3.2% to $ 8.39 at 9:55 PM in New York.
GE has sought to reassure investors about its long-term care portfolio after Markopolo's claims sent shares that fell the most since 2008 last Thursday. The company said Monday in a post from Steve Winoker, vice president of investor communications, that the role of a reinsurer means it will not be responsible for 100% of all life claims.
"Our current reserves are well-supported for our long-term care portfolio," GE said in an email Tuesday. "Our future commitments depend on variables that will play out over decades, not years, and are assessed using rigorous annual test processes, sound actuarial analysis and application of regulatory and accounting rules. "
(Updates with GE's comments, shares start in second paragraph.)
– With the help of Richard Clough.
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